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Understanding The Fundamentals of Day Trading

Feb 25, 2008
If you can study and understand the concept of day trading, you have the potential to be a successful day trader. You need to be aware of how and why share and stock prices fluctuate. Day trading is all about buying and selling commodities or shares in a day. You normally need to close all your share positions at the end of the trading day.

If you have stocks moving with a large volume, this usually means that one person has purchased a lot or several people have been buying these stocks. You might wonder why this occurs because this is not what usually happens in day trading.

It normally means that these people have some information about the stock which you do not. The feel a large scale investment in a certain stock will pay off. If a stock doesn't move much in day trading, this means that not many people have bought the stock, or not much has been traded.

There is a rule used in day trading when you short a stock. This is called the uptick rule. It is used in day trading to stop the stock going down too quickly. An uptick has to be executed in markets meant for selling stocks. If there is not an uptick and the stock falls, you will be executed for the fallen price. This can be prevented if you place a limit order.

If you use a limit order, it doesn't matter whether or not you are filled at this price because you are ensured that slippage will not occur in your stock. Down trends occur quicker than up trends in day trading, so with the uptick rule, you will either miss big moves because of your limit order or lose money because of big slippage. It is better to miss big moves than lose money, so you should always use a limit order when you are short selling in day trading.

You might want to think about having a partner for day trading. This might work out well because the other person might have more money and experience so, if you are a novice, this will be helpful and teach you more about day trading. If you trade with a partner, you can trade more and therefore earn more profits.

The only potential problem with partnership is that you have to make sure you both agree on trading decisions and contingency measures. You might end up arguing unless you sort this out first.

Your partner should be someone you know well and trust totally. If you are not sure about them or you differ in your opinions about trading methods, it would be better to trade alone.You need to conquer the five human weaknesses before becoming a day trader. These are greed, fear, jealousy, ignorance and pride. Fear and greed are common in day trading. Greed makes someone trade too much and for too long. Fear might scare someone out of continuing with their winning streak.

Ignorance might mean you make mistakes and pride will not allow you to admit your errors. This might result in small or large losses. If you are jealous, you might end up being too subjective, which is not good for a day trader either.

It is best to have a detached attitude if you are day trading. You must be happy to take risks, you need to be flexible and always willing to learn more. Everyone who is in day trading has to start somewhere but the key is learning as you progress, in order to understand more about the day trading market and become better at it.
About the Author
Mark Plummer is a UK based independent Offshore Investment advisor.Has been involved in the financial services and financial planning business since leaving full time education.If you don't want to trade yourself then you must be interested in this Investment Fund
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